dimanche 14 mai 2017

Vertu Motors

Date de l'analyse:14/05/2017
Cours: 48p
Nb d'actions: 397 269 839
Market cap: 190 689 522 GBP
Net debt: 9m GBP (-21M of net dept plus 30M due to business timing, see capital allocation section below)
EV: 200M GBP


The group is the 5th car dealer in UK. The market is fragmented and being consolidated. Vertu Motors is also participating in this consolidation by purchasing under performing dealer and driving them back to normal profitability and eventually building a scaled franchised dealership. The company wants to grow cash flow by growing revenues, managing margins and working capital. Working capital is very important in this business as accounts payable and account receivable constitute an important part of the balance sheet.

So far, the business has been growing through equity offering. However, the management indicates that they now want to use existing cash flow and debt to fund future acquisitions and capex. The table below show the planned capital additions for the next few years (from the annual report 2017), without considering any acquisition or divestment.

As from 2019, capital additions would be less important and free cash flow should improve.

The growth can be illustrated with the following two graphs representing the growth in sales and the growth in earnings per share.

Big uncertainties exist with the Brexit. Also, sales of vehicles in UK reached a historical high at 2,69M units in 2016, and this is expected to decline in 2017 (http://www.bbc.com/news/business-38516247).

However, Vertu Motors' business is divided into four parts that are better explained from the following extract from the annual report 2017 :  

We can see that after sales and used cars represent an important part of the gross results, which seems to be a good counter cyclical effect to the potential downturn of new cars sales. This would not fully prevent a downturn due to a recession.

Capital allocation

The group has virtually no debt as the annual report indicates a net cash position of 21m GBP, although the managements indicates that 30m GBP should be deducted to that due to the timing of the closing of the balance sheet. With no debt, the group is in a better position compared to competitors in case of a recession. 

Vertu motors pays a dividend with a policy of having net income representing about 4 times the dividend, which seems to be reasonable when growing with a return of investment higher than the cost of capital. I would even prefer no dividend at all in this situation.

The pension scheme is slightly over funded.


Return on equity for 2017 is 10,8%. 

The free cash flow to equity (before acquisitions) over the last ten years stand at 12,1%.

EBIT 2017 is 30m (2016 was 26m).
Dluted earnings per share 2017 is 6,04p (2016 was 5,92p)
Book value of equity 2017 is 246m (2016 was 198m) with 33m$ coming from the issuance of new shares.

With the data from the annual report 2017, we have:
EV/EBIT = 200/30 = 6,67 ( equivalent to 15% return)
PER = 48/6,04 = 8 with no debt


The valuation seems to be very attractive for a growing company (although in a growing market during in a cyclical industry) but the sales of new care seems to have reached a peak and it is facing the Brexit. A lot of uncertainties are already priced in, but I would prefer to wait for a drop in the share price, knowing that the fundamentals of the company are very good (no net debt).

samedi 6 mai 2017


Following the analysis of Overstock, I got interested by Wayfair as Overstock's CEO keeps talking about Wayfair, expecially during the Q4 2016 conference call, highlighting their pretended non sustainable growth. This made me curious to compare both competitors and to follow Wayfair's evolution.

Date of analysis: 06/05/2017
Share price: 48,85$
Number of shares: 50 338 973 of  class A (1 vote per share) and 35 617 581 of class B (10 votes per share)
Market cap: 4 113 m$
Net debt: -348m$ (but this cash would be required for accounts payable, see below)
EV: 3765m$

Interesting discussions are:


Wayfair is an online retailer for home products with currently 8 millions products offered by 10 000 suppliers. 2016 revenues are 3,8b$ and 90% of revenues are in US, but they are trying to expand in Canada, UK and Germany.

Wayfair wants to address this market for home that it estimates to be a 600b$ market in US/Canada/Europe, for which 9% of the sales are made online. 

Wayfair is currently growing to capture market share to ultimately gain scale economy and be profitable with a 8-10% EBITDA margin (excluding equity based compensation), according to the Q4 2016 presentation. Currently, Wayfair is losing money to fund its growth via marketing spends, capex investments for its logistics operations and customer support. 
Wayfair has been losing money every single year, with a net loss of 194m$, 77m$ and 150m$ in 2016, 2015 and 2014.

The big question is to know if Wayfair can be profitable once it reaches a satisfying scale and can be profitable. If Wayfair cuts its advertising expenses, it will probably reduce the sales.

Moreover, comparing some metrics to Overstock, we can see that the efficiency of operations does not seem to be optimal as Overstock generates much more revenues per employees, spend less to acquire customers and get a higher contribution margin and repeated orders from these customers. However, the more Wayfair scales, the more it should have repeat customers and the less it should spend in advertising as a % of sales. Also, Wayfair has higher gross margin that is explained by Overstock's CEO by higher prices on average from Wayfair according to third parties surveys (as the statement is coming from Overstock, it must be treated as potentially biaised).

The table below shows some elements of comparison with Overstock for 2016:

Google Trends is also interesting to check as we can see that Wayfair is growing on volume searchs while overstock tends to decline over the last five years.

Wayfair is also showing Customer Acquisition Cost in the slide below from the Q4 2016 presentation. 

I see many issues with it. First, the total advertising spend does not include 177m$ of marketing and sales, but let's say that this is the amount needed for the existing customers to keep ordering. So, 398,1m$ is only or new customers acquisition and therefore 66$ is spend to acquire a new customer.

Then, the contribution margin is calculated by the gross margin less Customer Service and Merchant fees. But this calculation completely forgets about the advertising and marketing costs ! Adding these costs would put the contribution margin to a bit less than 3%. At 3%, annual contribution per customer is 395*3%=12$. Moreover, so far, only 58% are repeated customers.

Another aspect to consider is that working capital is negative. It is great as long as they grow, but now, the account payable is greater than the cash, and current ration is less than one. Wayfair could so far pay the suppliers later and later (42 Days Payable Outsanding), but this is not an indefinite proposition and at some points it has to stop, or some cash will be needed to cover the short term expanses, although Wayfair claims that they want to self fund their growth. It will be interesting to follow the working capital in the next quarters as I believe this is not sustainable.


Please see the following article for my valuation of Overstock.

As Wayfair is consistently reporting losses, and even sometimes negative cash flow from operations, a way to look at it is to compare Price/sales of both companies. I don't consider EV as cash is probably needed to cover the account payables.
Overstock Price/Sales: 0,22
Wayfair Price/Sales: 1,2

Another way to look at it is to consider the long term goal of 8% EBITDA margin for Wayfair, consider that when it is stable, it would demand a multiple of 8 times EBITDA (arbitrary value I give for a stable profitable retailer). Therefore, the targer EBITDA should be 4113/8 = 514m. With a margin of 8%, revenues should be 514/0.08 = 6,5b$, considering that this margin will be reached. We should also discount this to take into account the time value of money. So, in order to sustain this valuation, the company should at least double its sells and reach an EBITDA margin of 8%, without raising any debto or capital, and within a reasonable time frame (let's say less than 5 years), which seem to be optimistic assumptions. 

According to Dataroma, the management and the co-founders have been selling a lot of shares over the last 12 months.


The valuation of Wayfair seems to be generous, considering it is facing strong online competition (Amazon, Overstock) and it seems that the the growth is not profitable, which could lead to some serious issues. However, I am not ready to short the stock as the timing of the events is really hard to predict. But for sure, I'll follow this interesting situation, still considering being a shareholder of Overstock.

lundi 27 mars 2017

CBL & Associates Properties

Date de l'analyse:27/03/2017
Cours: 9,45 $
Nb d'actions: 170 792 645
Preferred stocks D (7,375%): 1 815 000 shares at liquidation preference of 250 $ (can be redeemed any time), market value: 238,9 $
Preferred stocks E (6,625%): 690 000 shares at liquidation preference of 250 $ (as from 12 October 2017, may be redeemed), market value: 231 $
Market cap: 1 613 990 495 $
Net debt: 4 950 000 000 $ (includes non consolidated debt)
Net debt + preferred = 4 950 000 000 + 626 250 000 = 5 576 250 000$
EV: 1 613 990 495 + 626 250 000 (total preferred+ 4 900 000 000 = 7 140 240 495$
Sources for analysis: 10K 2016, presentation March 2017 and Q4 2016 conf call. For the rest of the analysis, I will consider the preferred stocks as debt.


CBL &Associates properties is a REIT of class B malls in US. Class B malls usually refers to malls with sales below $500/sqf. The company divides its properties into Tiers:
Tier 1: sales > 375$/sqf
Tier 2: sales > 300$/sqf and < 375$/sqf
Tier 3: sales < 300$/sqf (Tier 3 now represents 6,1% of NOI).

For the total portfolio, average Sales per sqf is 376$ with a diversified range of tenants.

Dividend yield is 11,22% with an FFO payout ratio of 48% !

Operational metrics

Occupancy rate is 94%.
NOI is 775m$ (NOI margin: 72%).
Adjusted FFO to the common unitholder is 410m$ (preferred dividends are deducted).
G/A represents 6,1% of the revenues and 8,1% of the NOI.

As the company does not provide a calculation of EBITDA, here is mine:
EBIT: 381m
D/A: 292m
Loss on impairment: 116m
One time gain in sale in equity in earnings in unconsolidated affiliate: 97m
EBITDA: 381+292+116-97 = 692m

Capital structure and credit metrics

81% of the 5b$ debt is at fixed rate.According to the presentation of March 2017, net debt to EBITDA is 6,5, but taking into account the prefered shares and calculating my EBITDA, I get net debt/EBITDA  at 8,06.
Interest coverage: 3,2.
Total debt / undepreciated book value of assets: 53%.
The debt is still high but the priority for the management is to reduce the debt (also reducing the number of unencumbered properties) and redevelop properties to maintain/raise the NOI. I give credit for the management as they have been doing this over the last few years and they own approximately 10% of the shares, therefore, interests are aligned. 

Net Debt/EBITDA = 5 576 / 692 = 8,06


Book Value Method

Gross book value is 10b$, debt and preferred is 5,5b$, therefore, the value of the equity should be 4,5b$, to be compared with a market value of 1,6b$. However the central question is the value of the properties now, considering the risks on the retails and shopping malls compared to the value of the assets when acquired.

NOI and cap Rate method

NOI is 770m. Applying a 10% discount rate gives 7,7b$. When subtracting debt and preferred, we have a valuation of 2,2b$.

We can try to give a more granular valuation based of the three Tiers proposed by CBL, but I could not find the share of Tier 1 and Tier 2 for the NOI. I only have 6,1% for the Tier 3 NOI. By applying a discount rate of 8% for Tier 1&2 and a discount rate of 12% for Tier 3, we have a valuation of:
Tier 1&2: 770m* (100%-6,1%) / 8% = 9b$
Tier 3: 770m*6,1%/9%= 521m$

When subtracting debt and preferred, we have a valuation of 9 + 0.52 - 5.5 = 4b$.
Obviously, by changing the cap rate by just 1%, we have big variations in the valuation and the cap rate is always an estimation. In this case, I've tried to consider a fair cap rate.

Relative valuation

FFO per share guidance for 2017: 2,26 - 2,33
Market value is 4,1x estimated 2017 FFO, which is very cheap. 
EV/EBITDA = 7140/692= 10,3

The question, as stated before is to guess the evolution of the retail industry and therefore, the evolution of the NOI. If the NOI is stable, the offered price is very cheap and could be easily multiplied by 2.


By all metrics, the company seems to be cheap. CBL & Associates Properties is a well managed REIT, but in a difficult market and with assets (class B malls) that could be in difficulty considering the current retail reputation in US with the development of online retail and the foreseen raising interest rates. 

Part of the anchors are Sears, JC Penney, Macy's and there is the fear that losing an anchor may impact a whole mall as smaller tenants will leave a less attractive mall. 

However, the management seems to be more optimistic and (pro)actively overcoming these difficulties while improving the balance sheet. At these price, I'd seriously consider buying some shares. 

During the conf call Q4 2017, the management informed that Q1 would have difficult comparable. I will be closely following.

lundi 13 mars 2017

Wolters Kluwer

Date de l'analyse:13/03/2017
Cours: 38.075 EUR
Nb d'actions: 287 699 000 (plus 14 198 000 treasury shares that I don't include)
Market cap: 10 954 139 000 EUR
Net debt: 1 927 000 000 EUR
EV: 12 881 139 000 EUR


From the annual report 2016: "Wolters Kluwer provides essential information, software, and services to doctors, nurses, accountants, lawyers, and audit, compliance, and regulatory professionals. We enable our customers to provide worldclass service and maximize their potential."

Having started the shift from the paper based information distribution to a software company a few years ago, they are successfully replacing and even outpacing the legacy paper based business with software. Digitial and services represent now 85% of the revenues of the portfolio. 77% of the revenues are recurring.

They grow organically in the low single digit area, and they also grow by acquisition. The strategy consists of buying software companies that are not up to scale yet and integrate them to make them benefit from their scale. Therefore, with the last acquisitions, they seem to buy companies at about five times the sales, which seems to be pretty high. Synergies and scalability must be successful for the acquisition to be relutive.

Financial position

Net debt/EBITDA = 1.7, and the management indicates that it is comfortable with a ratio at up to 2.5. Moreover, cash generation is stable, growing and recurring, therefore, the company seems to be in a solid financial position.

Allocation of capital

The dividend policy is to raise the dividend per share every year. In 2016, 223m has been spent for it (0.79 EUR par action) and it can be paid in cash or shares (DRIP). 

A share buy back program is in place with 600m over 3 years, of which 200m have been executed in 2016. Considering the valuation of the company, I am not sure this is an optimal allocation of capital.

Capex of 224m and acquisitions for 461m are to be compared with depreciation and amortizations for 360m. The fact that the capex is far below depreciation and amortization is a sign that the company heavily relies on acquisitions to grow. Moreover, this strategy inflates the "net cash from operating activities".


First of all, in their reports, something makes me sick. They always speak about "adjusted". In the annual report 2016, the word adjusted appears 194 times in 165 pages. In 2015, it was 184 times in 175 pages. While sometimes it can be justified, I think that this is too much, considering that more than 60% of the part of the short term incentive target performance is based on adjusted net profit and adjusted free cash flow... I could not find any justification of using these adjusted measures.

The difference between profit and the adjusted net profit is that the adjusted net profit does not take into account the amortization of publishing rights and impairments. To me, this should be taken into account because even if it is not a cash expense, this corresponds to a depreciation of an asset that must be maintained with capex to retains its profitability. Therefore, for the valuation, I will ignore the "adjusted" results. 

Same for the calculation of the ROIC, the numerator takes into account "adjusted" operating profit to give an ROIC of 9.8%. Re-adjusting the NOPAT to take into account the amortization of publishing rights and impairments, I calculate an ROIC of 8.1% (766 of operating profit * (1- 25% of taxes) / 7084 of average invested capital).

Sales 2016: 4297m
Net income 2016: 489m
Operating profit: 766m

Adjusted free cash flow of 708m is calculated taking into account only the capex, and without acquisitions. This gives an inflated result, as depreciation and amortization is by far superior to capex. Re-adjusting with capex = depreciation and amortization in order to give an approximation of the maintenance capex, free cash flow should be around 570m. With this figure, we don't consider any growth.

After all these modifications, we arrive at the following measures:

EV/Sales: 3
PER: 22.5
EV/(EBITDA-mcapex) = 12 881 / (1133 - 360) = 16,66, therefore 6% annual return


Wolters Kluwer is a growing company, with expanding margins and generating generous free cash flow, but also being generously valued with a PER of 22 for an ROIC of 8.1%. The allocation of capital does not seem optimal as shares buy back seems to be done not matter the price offered by the market. Moreover, it seems to heavily rely on acquisitions to maintain and grow its assets and when buying companies at five times their sales, the growth story heavily depends on the success of these acquisitions. As said, I also don't like the company communicating a lot about adjusted results. Therefore, at these prices, I am not interested by Wolters Kluwer.

lundi 27 février 2017

Manutan International - Update

Manutan International

J'avais présenté cette société sur cet article de ce blog en août 2014, et je suis toujours actionnaire depuis 2011. Depuis 2011, le cours de bourse a doublé et il est temps de réviser la valorisation de Manutan suite à la sortie du rapport annuel en janvier 2017 pour l'année fiscale qui se termine le 30 septembre 2016.

Date de l'analyse:27/02/2017
Cours: 70 EUR
Nb d'actions: 7613291
Market cap: 532.93m EUR
Dette nette: 5.14m EUR

Pour 2015, 2016, le groupe est en croissance organique et externe, et, couplé à une amélioration des marges les résultats opérationnels et résultats nets sont en forte progression.

Une analyse détaillée de ratios opérationnels ci-dessous montre une tendance à se faire payer moins rapidement, et à avoir un inventaire qui tourne de moins en moins rapidement. En conséquence, le cash conversion cycle a fortement augmenté cette année.
A noter également pour cette année une légère diminution de la marge brute. Ces éléments seront à surveiller pour les prochaines publications.


EV/Sales : 538m / 682m = 0.79
Résultat net par action: 4.48, ce qui nous donne un PER de 70/4.48 = 15,6
EBIT: 46.8 => EV/EBIT = 538m/46.8m = 11.5

Le ROE est de 9% 
P/B = 1.4


A mon avis, Manutan devient correctement valorisée. Je décide pour l'instant de garder en considérant sérieusement vendre à environ 80 EUR, toutes choses étant égales par ailleurs.

vendredi 24 février 2017

Orchestra Premaman

Date de l'analyse: 23/2/2017

Orchestra - Premaman (KAZI). A date de l'analyse:
Cours: 11.61EUR
Nb d'actions: 18538110
Market cap: 215.23m EUR
Dette nette: 192m EUR

Orchestra - Premaman (KAZI) vend des produits et habits pour enfants. L'entreprise est en croissance (organique et par acquisitions) dans un secteur difficile (le retail) mais stable. Une discussion intéressante: http://www.devenir-rentier.fr/t5213

L'entreprise vise un CA supérieur à 1 Mds d'euros en 2019 pour une marge d'EBITDA de 10% (contre 7.9% actuellement).

Avec une EV à 407m, les ratios EV/sales pour une entreprise rentable et en croissance, ou EV/EBITDA-mCapex deviennent très attractifs.

L'entreprise vise une croissance à l'international et à se développer on line. Aussi, fin 2016, Orchestra annonce le rachat de Destination Maternity (DEST) avec le prix suivant: pour chaque action DEST, Orchestra donnera 0.515 action KAZI.

Lorsque l'on est intéressé par KAZI, il y donc une possibilité d'acheter par une décote en achetant DEST si le cours de DEST est inférieur à 0.515 * cours de KAZI. Il faut bien sur avoir confiance au fait que la fusion se fera, que la parité avec le $ ne deviendra pas très défavorable, et tenir compte du fait que l'on aura des ADR KAZI en $ cotées aux US à la place d'actions KAZI cotées en euros à Paris. Il faut aussi bien sur considérer l'imposition de chacun pour une telle transaction.

D'autre part, et c'est le plus important, la fusion fait beaucoup de sens car, d'une part, permet à DEST de se développer hors US, et KAZI de se développer aux US et d'autre part adresse des clientèles complémentaires (femmes enceintes pour DEST et mères de jeunes enfants pour KAZI).

Enfin, il ne semble pas que KAZI ait payé trop cher (comme pour les acquisitions passées de KAZI) pour acquérir DEST.

J'ai donc décidé d'acheter un mix de KAZI et DEST.

dimanche 5 février 2017


Date de l'analyse: 5/2/2017
Cours actuel: 16,8$
Nb d'actions: 25 383 942
Market cap: 426.45m$
Dette nette: -138m$

Overstock peut être vu comme une holding avec  comme activité principale étant le retail online et comme call option Medici qui est un ensemble de businesses liés eux fintech et aux technologies blockchain. Il convient donc à mon avis de faire une évaluation en somme des parties en séparant les deux entités.

1. Le business retail online

En 2016, les revenus sont de 1,8b$, en hausse de 8% par rapport en 2015, pour une marge brute de 18.3%, identique à celle de 2015. Le pre-tax income 2016 est de 32,3m$. Les résultats du business retail online sont masqué par les pertes de Medicis (voir ci-dessous) et les investissements réalisés pour un nouveau building pour un coût total de 99m$ sur plusieurs années.

2. Le business Medicis

Le plus important de l'ensemble de ces businesses, et de loin, semble être T0, qui utilise la technologie blockchain pour assurer l'émission de titres financiers avec un settlement date le même jour que l'émission des titres, à la place de J+3 habituellement.  L'utilisation de blockchain pour l'émission de titres Overstock a été une première mondiale et une réussite durant la fin 2016.
La technologie blockchain est nouvelle et me paraît etre révolutionnaire. Ceci dit, il est très difficile de savoir comment cela va évoluer. Pour l'instant, Medicis perd de l'argent (12m$ en 2016), mais pourrait être une call option très intéressante, considérant qu'il y a d'autres businesses que T0 dans Medicis. Pour rester prudent, je compte Medicis pour 0.

Evaluation globale

En comptant Medicis pour 0, l'évaluation d'Overstock revient pour moi à évaluer le business retail Internet tout en ayant une call option gratuite avec Medicis.

Le management vise un operating cash flow à 75m$, voire 100m$, et en comptant 25m$ de capex, on a donc un business qui génère 50m$ de cash flow par an. L'EV actuelle représente moins de six foix ces cash flows.
Le management dit également vouloir, à ce prix, procéder à des racahts d'action, ce qui est une bonne chose.
En considérant une call option qui peut être très importante, je considère donc sérieusement l'achat d'action overstock.